INTRODUCTION

1:
What is the project?

INTRODUCTION

The project is about the status of Indian Oil Industry in the International Oil market with effects on the Indian equity market. The objectives of this project encompasses the ups and downs of the sentiments and mass psychology of Indian investors in the Oil sector companies and the way they invest and withdraw including the investing methods of the FIIs in the Oil sector stocks in the Indian equity market.

Primary Objective:

The project includes study of Oil sector stocks and indices of major Oil companies of India listed on the Bombay stock exchange by analyzing the fundamentals of the companies as well as the technical charts while predicting the future movements of the stock.

The project also includes detailed study of the International and domestic oil industry and how the Government of India regulations on the oil sector along with the volatility of the International Oil prices affects the Oil sector stocks on the BSE. .

Sub-Objectives: a) To justify the current investment in the chosen securities of Oil sector. b) To understand the movement and performance of stocks. c) To recommend increase/decrease of investment in a particular stock.

Scope of the Project

The project demanded understanding of the ups and downs of the prices of the crude oil prices in the International markets. The project demanded to understand the volatility in the movement of International crude oil indices like Brent crude and West Texas Intermediate (New York crude). The project encompasses the rules and regulations of OPEC (Organization of petroleum exporting countries), IEA (International Energy Agency) and Government of Indias like subsidy sharing and diesel deregulations etc.

COMPANY OVERVIEW

2. COMPANY OVERVIEW
History Company was founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an independent business research and information provider. Company gradually evolved into a onestop financial services solutions provider. Strong management team comprises competent and dedicated professionals. Company is a pan-India financial services organization across 1,361 business locations and a presence in 428 cities. Our global footprint extends across geographies with offices in New York, Singapore and Dubai. Companies are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Company offers a wide range of services and products comprising broking (retail and institutional equities and commodities), wealth management, credit and finance, insurance, asset management and investment banking. Company are registered with the BSE and the NSE for securities trading, MCX, NCDEX and DGCX for commodities trading, CDSL and NSDL as depository participants. Company also received the FII license in IIFL Inc. IIFL Securities Pte Ltd received approval from the Monetary Authority of Singapore to carry out corporate advisory and dealing in securities operations. Two subsidiaries India Infoline Investment Services and Money line Credit Limited are registered with RBI. Deposit taking non-banking financial services companies. India Infoline Housing Finance Ltd, the housing finance arm, is registered with the National Housing Bank.

Milestones 1995 Incorporated as an equity research and consulting firm with a client base that included leading FIIs, banks, consulting firms and corporates. 1999 Restructured the business model to embrace the internet; launched archives.indiainfoline.com mobilized capital from reputed private equity investors. 2000 Commenced the distribution of personal financial products; launched online equity trading; entered life insurance distribution as a corporate agent. Acknowledged by Forbes as Best of the Web and .must read for investors. 2004 Acquired commodities broking license; launched Portfolio Management Service. 2005 Listed on the Indian stock markets. 2006 Acquired membership of DGCX; launched investment banking services. 2007 Launched a proprietary trading platform; inducted an institutional equities team; formed a Singapore subsidiary; raised over USD 300 mn in the group; launched consumer finance business under the Money line brand.

2008 Launched wealth management services under the IIFL Wealth brand; set up India Infoline Private Equity fund; received the Insurance broking license from IRDA; received the venture capital license; received in principle approval to sponsor a mutual fund; received Best brokerIndia award from Finance Asia; Most Improved Brokerage- India award from Asiamoney. 2009Received registration for a housing finance company from the National Housing Bank; received Fastest growing Equity Broking House - Large firms in India by Dun & Bradstr Introduction to company The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, GOI bonds and other small savings instruments. IIFL recently received an in-principle approval for Securities Trading and Clearing memberships from Singapore Exchange (SGX) paving the way for IIFL to become the first Indian brokerage to get a membership of the SGX. IIFL also received membership of the Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of Indias leading online destinations for personal finance, stock markets, economy and business. IIFL has been awarded the Best Broker, India by Finance Asia and the Most improved brokerage, India in the Asia Money polls. India Infoline was also adjudged as Fastest Growing Equity Broking House - Large firms by Dun & Bradstreet. A forerunner in the field of equity research, IIFLs research is acknowledged by none other than Forbes as Best of the Web and a must read for investors in Asia. Our research is available not just over the Internet but also on international wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read Indian brokers. A network of over 2,500 business locations
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spread over more than 500 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches. India Infoline Group subsidiaries: India Infoline Media and Research Services Limited India Infoline Commodities Limited India Infoline Marketing & Services India Infoline Investment Services Limited IIFL (Asia) Pvt Limited

THEORETICAL BACKGROUND & LITERATURE REVIEW

3. REVIEW OF LITERATURE
Introduction to security analysis Securities research is a discipline within the financial services industry. Securities research professionals are known most generally as "analysts," "research analysts," or "securities analysts;" all the foregoing terms are synonymous. Securitiy analysts are commonly divided between the two basic kinds of securities: equity analysts (researching stocks and their issuers) and fixed income analysts (researching bond issuers). However, there are some analysts who cover all of the securities of a particular issuer, stocks and bonds alike. Securities analysts are usually further subdivided by industry specialization (or sectors) -- among the industries with the most analyst coverage are biotechnology, financial services, energy, and computer hardware, software and services. Fixed income analysts are also often subdivided by asset classamong the fixed income asset classes with the most analyst coverage are convertible bonds, high yield bonds and distressed bonds . In the broadest terms, securities analysts seek to develop, and thereafter communicate to investors, insights regarding the value, risk, and volatility of a covered security, and thus assist investors to decide whether to buy, hold, sell, sell short, or simply avoid the security in question or derivative securities. To gather the information required to do so, securities analysts review periodic financial disclosures (such as made by United States-listed issuers to the S.E.C.) of the issuer and other relevant companies, read industry news and use trading history and industry information databases, interview managers and customers of the issuer, and perform their own primary research.
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Equity In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists. In an accounting context, Shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock. At the start of a business, owners put some funding into the business to finance operations. This creates a liability on the business in the shape of capital as the business is a separate entity from its owners. Businesses can be considered, for accounting purposes, sums of liabilities and assets; this is the accounting equation. After liabilities have been accounted for the positive remainder is deemed the owner's interest in the business. This definition is helpful in understanding the liquidation process in case of bankruptcy. At first, all the secured creditors are paid against proceeds from assets. Afterward, a series of creditors, ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity is the last or residual claim against assets, paid only after all other creditors are paid. In such cases where even creditors could not get enough money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also known as risk capital or liable capital. An equity investment generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises. It may also refer to the acquisition of equity (ownership)
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participation in a private (unlisted) company or a startup company. When the investment is in infant companies, it is referred to as venture capital investing and is generally regarded as a higher risk than investment in listed going-concern situations. Accounts listed under ownership equity include Share capital (common stock) Preferred stock Retained earnings Treasury stock Employee Stock options Methods of Analysis An analysis of securities and the organization and operation of their markets. The determination of the risk reward structure of equity and debt securities and their valuation. Special emphasis on common stocks. Other topics include options, mutual fluids and technical analysis. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments. Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. Fundamental Analysis Fundamental analysis can be broken down into quantitative and qualitative factors. The Very basics when talking about stocks, fundamental analysis is a technique that attempts to determine a securitys value by focusing on underlying factors that affect a company's actual business and its future prospects. On a broader scope, you can perform fundamental analysis on industries or
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the economy as a whole. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements. Fundamental analysis serves to answer questions, such as: Is the companys revenue growing? Is it actually making a profit? Is it in a strong-enough position to beat out its competitors in the future? Is it able to repay its debts? Is management trying to "cook the books"? The various fundamental factors can be grouped into two categories: quantitative and qualitative. Quantitative capable of being measured or expressed in numerical terms. Qualitative related to or based on the quality or character of something, often as opposed to its size or quantity. Qualitative Factors In this section there are highlights of some of the company-specific qualitative factors that we should be aware of. Business Model Even before an investor looks at a company's financial statements or does any research, one of the most important questions that should be asked is: What exactly does the company do? This is referred to as a company's business model it's how a company makes money. Sometimes business models are easy to understand. Take McDonalds, for instance, which sells hamburgers, fries, soft drinks, salads and whatever other new special they are promoting at the time. It's a simple model, easy enough for anybody to understand. Competitive Advantage

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Another business consideration for investors is competitive advantage. A company's long-term success is driven largely by its ability to maintain a competitive advantage - and keep it. Powerful competitive advantages, such as Coca Cola's brand name and Microsoft's domination of the personal computer operating system, create a moat around a business allowing it to keep competitors at bay and enjoy growth and profits. When a company can achieve competitive advantage, its shareholders can be well rewarded for decades. A sustainable and competitive advantage is gained by: A unique competitive position Activities tailored to the company's strategy A high degree of fit across activities (it is the activity system, not the parts, that ensure sustainability) A high degree of operational effectiveness

Management Just as an army needs a general to lead it to victory, a company relies upon management to steer it towards financial success. Some believe that management is the most important aspect for investing in a company. It makes sense - even the best business model is doomed if the leaders of the company fail to properly execute the plan. So how does an average investor go about evaluating the management of a company? This is one of the areas in which individuals are truly at a disadvantage compared to professional investors. We can't set up a meeting with management if you want to invest a few thousand dollars. On the other hand, if you are a fund manager interested in investing millions of dollars, there is a good chance you can schedule a face-to-face meeting with the upper brass of the firm. Every public company has a corporate information section on its website. Usually there will be a quick biography on each executive with their employment history, educational background and any applicable achievements. Don't expect to find anything useful here. Let's be honest: We're looking for dirt, and no company is going to put negative information on its corporate website.

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Instead, here are a few ways for we to get a feel for management: 1. Conference Calls The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) host quarterly conference calls. (Sometimes well get other executives as well.) The first portion of the call is management basically reading off the financial results. What is really interesting is the question-and-answer portion of the call. This is when the line is open for analysts to call in and ask management direct questions. Answers here can be revealing about the company, but more importantly, listen for candor. Do they avoid questions, like politicians, or do they provide forthright answers?

2. Management Discussion and Analysis (MD&A) The Management Discussion and Analysis is found at the beginning of the annual report .In theory, the MD&A is supposed to be frank commentary on the management's outlook. Sometimes the content is worthwhile, other times it's boilerplate. One tip is to compare what management said in past years with what they are saying now. Is it the same material rehashed? Have strategies actually been implemented? If possible, sit down and read the last five years of MD&As; it can be illuminating. 3. Ownership and Insider Sales Just about any large company will compensate executives with a combination of cash, restricted stock and options. While there are problems with stock options, it is a positive sign that members of management are also shareholders. The ideal situation is when the founder of the company is still in charge. 4. Past Performance Another good way to get a feel for management capability is to check and see how executives have done at other companies in the past. You can normally find biographies of top executives on company web sites. Identify the companies they worked at in the past and do a search on those companies and their performance.
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5.Corporate Governance Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors and stakeholders. These policies are defined and determined in the company charter and its bylaws, along with corporate laws and regulations. The purpose of corporate governance policies is to ensure that proper checks and balances are in place, making it more difficult for anyone to conduct unethical and illegal activities. Good corporate governance is a situation in which a company complies with all of its governance policies and applicable government regulations in order to look out for the interests of the company's investors and other stakeholders. 6. Financial and Information Transparency 7. Structure of the Board of Directors Quantitative factors Customers Some companies serve only a handful of customers, while others serve millions. In general, it's a red flag if a business relies on a small number of customers for a large portion of its sales because the loss of each customer could dramatically affect revenues. Market Share Understanding a company's present market share can tell volumes about the company's business. The fact that a company possesses an 85% market share tells you that it is the largest player in its market by far. Furthermore, this could also suggest that the company possesses some sort of "economic moat," in other words, a competitive barrier serving to protect its current and future earnings, along with its market share. Market share is important because of economies of scale. When the firm is bigger than the rest of its rivals, it is in a better position to absorb the high fixed costs of a capital-intensive industry.

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Industry Growth One way of examining a company's growth potential is to first examine whether the amount of customers in the overall market will grow. This is crucial because without new customers, a company has to steal market share in order to grow. Competition Simply looking at the number of competitors goes a long way in understanding the competitive landscape for a company. Industries that have limited barriers to entry and a large number of competing firms create a difficult operating environment for firms. One of the biggest risks within a highly competitive industry is pricing power. This refers to the ability of a supplier to increase prices and pass those costs on to customers. Companies operating in industries with few alternatives have the ability to pass on costs to their customers Regulation Certain industries are heavily regulated due to the importance or severity of the industry's products and/or services. As important as some of these regulations are to the public, they can drastically affect the attractiveness of a company for investment purposes. In industries where one or two companies represent the entire industry for a region, governments usually specify how much profit each company can make. In these instances, while there is the potential for sizable profits, they are limited due to regulation. In other industries, regulation can play a less direct role in affecting industry pricing. For example, the drug industry is one of most regulated industries. And for good reason - no one wants an ineffective drug that causes deaths to reach the market. Financial statements The massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. On the other hand, if you know how to analyze them, the financial statements are a gold mine of information.

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Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use the quantitative information gleaned from financial statements to make investment decisions. The Major Statements The Balance Sheet

The balance sheet represents a record of a company's assets, liabilities and equity at a particular point in time. Assets represent the resources that the business owns or controls at a given point in time. This includes items such as cash, inventory, machinery and buildings. The other side of the equation represents the total value of the financing the company has used to acquire those assets. Financing comes as a result of liabilities or equity. Liabilities represent debt (which of course must be paid back), while equity represents the total value of money that the owners have contributed to the business - including retained earnings, which is the profit made in previous years. The Income Statement

While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually. The income statement presents information about revenues, expenses and profit that was generated as a result of the business' operations for that period. Statement of Cash Flows

The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities: Operating Cash Flow (OCF): Cash generated from day-to-day business operations

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Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment or long-term assets Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds The cash flow statement is important because it's very difficult for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake cash in the bank. For this reason some investors use the cash flow statement as a more conservative measure of a company's performance.

TECHNICAL ANALYSIS What Is Technical Analysis? Technical analysis can be conditionally divided into some main parts such as: Types of charts Graphical methods Analytical methods

Technical analysis is concerned with predicting future price trends from historical price and volume data. The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates. A technical analysis is based on three axioms:

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Movement of the market considers everything Movement of prices is purposeful History repeats itself.

Support and resistance Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower.

Resistance, on the other hand, is the point at which sellers (bears) take control of prices and prevent them from rising higher. The price at which a trade takes place is the price at which a bull and bear agree to do business. It represents the consensus of their expectations.

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Support levels indicate the price where the most of investors believe that prices will move higher. Resistance levels indicate the price at which the most of investors feel prices will move lower. Role Reversal When a resistance level is successfully broken through, that level becomes a support level. Similarly, when a support level is successfully broken through, that level becomes a resistance level

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Price fields Open High Low Close

Types of charts Line charts Bar charts Japanese candle charts

The above diagram shows price patterns in Japanese candle stick charts

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A Japanese candle stick chart DOW THEORY TRENDS: The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of technical analysis. The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages. Dow created the Industrial Average, of top blue chip stocks, and a second average of top railroad stocks (now the Transport Average). He believed that the behavior of the averages reflected the hopes and fears of the entire market. The behavior patterns that he observed apply to markets throughout the world. Three Movements Markets fluctuate in more than one time frame at the same time: Nothing is more certain than that the market has three well defined movements which fit into each other. The first is the daily variation due to local causes and the balance of buying and selling at

that particular time.

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The secondary movement covers a period ranging from ten days to sixty days, averaging

probably between thirty and forty days. The third move is the great swing covering from four to six years.

Bull markets are broad upward movements of the market that may last several years,

interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend. Secondary movements normally retrace from one third to two thirds of the primary trend

since the previous secondary movement. Daily fluctuations are important for short-term trading, but are unimportant in analysis of

broad market movements. Primary Movements have Three Phases The general conditions in the market: Bull markets Bull markets commence with reviving confidence as business conditions improve. Prices rise as the market responds to improved earnings Rampant speculation dominates the market and price advances are based on hopes and

expectations rather than actual results.

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Bear markets Bear markets start with abandonment of the hopes and expectations that sustained

inflated prices. Prices decline in response to disappointing earnings. Distress selling follows as speculators attempt to close out their positions and securities

are sold without regard to their true value. Trends Bull Trends A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally. The decline, between rallies, ends above the lowest point of the previous decline.

The start of an up trend is signaled when price makes a higher low (trough), followed by a rally above the previous high (peak):

Start = higher Low + break above previous High.

The end is signaled by a lower high (peak), followed by a decline below the previous low (trough):

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End = lower High + break below previous Low.

A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.

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Sideways trend

Role of Volume Price moving up with increased volume is equal to demand and indicates a trend reversal and a bullish market in the near future. Price moving down with increased volume is equal to supply and indicates a trend reversal and a bearish market in the near future.

Moving average Indicator showing an average value of a stock price. As the stock price changes so does the average price. Time period for which an average is calculated is very important.(5-13-26)

Most commonly used averages Simple average Exponential average Weighted average

Candlestick patterns Neutral patterns. Doji

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 Spinning Tops. Bullish patterns. Bullish Piercing. Bullish Engulf. Hammer. Morning star. Bearish patterns. Bearish Piercing. Bearish Engulf. Inverted hammer. Evening star. Hanging man. Price patterns Price patterns give price targets. Price patterns give time targets. Major opportunity to capitalize on.

Reversal Patterns: Bearish Head and Shoulders

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Double top

Bullish patterns Inverted Head & Shoulders.

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Double bottom

Continuation patterns Up flag Down flag

Oil Industry overview (India) India is the worlds fifth biggest energy consumer and continues to grow rapidly It is the third biggest coal producer in the world, but has limited supplies of oil. Oil accounts for about 31% of Indias total energy consumption. Indias 5.80bn bbl of proven oil reserves represents just 0.5 percent of the worlds total, with Mumbai High being the biggest producing field. Indias average oil production (total liquids) in 2008 was 766,000b/d. In terms of gas, India currently accounts for 0.4 percent of global reserves and just over 1 percent of production . While most of the developed gas is in Mumbai High, major discoveries by a number of domestic companies hold significant medium-to longterm potential, with Reliance Industries, state-controlled Oil & Natural Gas Corporation (ONGC) and Gujarat State Petroleum
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Corporation (GSPC) all confirming significant deepwater finds that are now under development or in early-stage production. The oil and gas sector is dominated by state controlled enterprises with ONGC the largest upstream-oriented oil company dominating the exploration and production (E&P) segment and accounting for roughl around three-quarters of the countrys oil output. Indias downstream segment is also dominated by state-controlled entities, although private companies have increased their market share. Indian Oil Corporation (IOC) is the largest state-controlled downstream company, operating 10 of Indias 17 refineries and controlling about three-quarters of the domestic oil transportation network .

Crude Oil Production in India

Crude oil production during 2009-10 at 33.69 million metric tonnes is 0.55% higher than 33.51 million metric tonnes produced during 2008-09.
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India has total reserves of 1201 million metric tonnes of crude oil Indias average oil production (total liquids) in 2008 was 766,000b/d. The refining capacity in the country increased to 184.386 million tonnes per annum (MTPA) as on 1.4.2010 from 177.968 MTPA as on 1.4.2009 The total number of retail outlets of Public Sector Oil Marketing Companies as on 1.4.2010 has gone upto 36462 from 34948 on 1.4.2010 India exported 50.97 million tonnes of petroleum products against imports of 23.49 million tonnes (including 8.83 million tonnes of LNG) in 2009/10.

Others include players like RIL and Cairn India.

Oil refining Industry of India 2009-2010

Under India's expansion plans running to 2012, the world's fourth biggest importer of crude oil is expected to reach refining capacity of 240.96 million tonnes. Capacity additions as well as Greenfield refineries announced by public and private sector players indicate that almost 40-50 MMTPA of additional refining capacity will be added by 2013-14 bringing the total capacity to nearly 240 MMTPA.

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NELP POLICY

Government of India introduced the NELP in 1997-98, with an aim of encouraging private sector investments in the Oil and Gas sector and providing a level playing fiekd to the public and private sector through allocating acrages on the basis of competitive bidding.

As on 30th June 2010, the total investment made by Indian and foreign companies was around USD 13.8 billion. After concluding eight rounds of NELP, production sharing contracts have signed. The eighth round was launches in April 2009 offering 70 blocks, the highest number of exploration blocks ever. A total of 62 companies comprising of 10 Foreign and 52 Indian companies have made the bids and 31 PSCs were signed with 20 companies in the NELP 8.

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Fuel Retailing in India The India private sector was not allowed in the retailing of fuel up to 2002. Subsequently, the government decided to open the sector to private participation subject to certain restrictions. The government, with its aim of insulatiug the Indian consumenr from volatility of crude oil prices in the International Markets, has been subsidising end user prices of petrol, deisel, kerosene and LPG. In june 2010, a major step was taken in the area of oving towards market determined pricing.The government through its Empowered Group of Ministers led by Finance Minister of India, Pranab Mukherjee decided to give a free hand to pertrol prices in line the market price, but Diesel is still regulated.

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Government also provides subsidies to the downstream companies in share with the upstream Oil companies. Indian Fuel market have a large potential if the restrictions are freed by the government of India, following which many potential private players can jump into the fuel retailing business.

Shell India, domestic arm of Royal Dutch shell plans to have 200 fuel outlets by the end of 2010-2011.

Others include players like Essar and Shell Oil. INTERNATIONAL OIL MARKET

OPEC and IEA OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter again. According to its statutes, one of the principal goals is the determination of the best means for safeguarding the organization's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.

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OPEC's influence on the market has been widely criticized, since it became effective in determining production and prices. Arab members of OPEC alarmed the developed world when they used the oil weapon during the Yom Kippur War by implementing oil embargoes and initiating the 1973 oil crisis. Although largely political explanations for the timing and extent of the OPEC price increases are also valid, from OPECs point of view, these changes were triggered largely by previous unilateral changes in the world financial system and the ensuing period of high inflation in both the developed and developing world. This explanation encompasses OPEC actions both before and after the outbreak of hostilities in October 1973, and concludes that OPEC countries were only 'staying even' by dramatically raising the dollar price of oil. OPEC's ability to control the price of oil has diminished somewhat since then, due to the subsequent discovery and development of large oil reserves in Alaska, the North Sea, Canada, the Gulf of Mexico, the opening up of Russia, and market modernization. As of November 2010, OPEC members collectively hold 79% of world crude oil reserves and 44% of the worlds crude oil production, affording them considerable control over the global market.The next largest group of producers, members of the OECD and the Post-Soviet states produced only 23.8% and 14.8%, respectively, of the world's total oil production.As early as 2003, concerns that OPEC members had little excess pumping capacity sparked speculation that their influence on crude oil prices would begin to slip IEA The IEA is an autonomous agency established in 1974 and based in Paris. The main IEA decision-making body is the Governing Board, composed of energy ministers from each member country or their senior representatives.A Secretariat, with a staff of energy experts recruited on a competitive basis primarily from OECD member countries, supports the work of the Governing Board and subordinate bodies. The IEA Secretariat is headed by an Executive Director appointed by the Governing Board. The IEA Secretariat collects and analyses energy data, organises high-level workshops with world experts on new topics and themes, assesses member and non-member countries domestic energy policies and programmes, makes global energy

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projections based on differing scenarios, and prepares studies and concrete policy recommendations for governments on key energy topics. The International Energy Agency is the energy forum for 28 advanced economies. IEA member governments are committed to taking joint measures to meet oil supply emergencies. They also have agreed to share energy information, to co-ordinate their energy policies and to co-operate in the development of rational energy programmes that ensure energy security, encourage economic growth and protect the environment.These provisions are embodied in the Agreement on an International Energy Programme, the treaty pursuant to which the Agency was established in 1974. Founding Objectives To maintain and improve systems for coping with oil supply disruptions. To promote rational energy policies in a global context through co-operative relations organisations. To operate a permanent information system on the international oil market. To improve the worlds energy supply and demand structure by developing alternative energy sources and increasing the efficiency of energy use. To promote international collaboration on energy technology. To assist in the integration of environmental and energy policies. with non-member countries, industry and international

Member Countries Australia,Austria,Belgium,Canada,Czech Republic,Denmark,Finland,France,Germany,Greece,Hungary,Ireland,Italy,Japan, (Republic of),Luxembourg,Netherland,New Republic,Spain,Sweden,Switzerland,Turkey,United Kingdom,United State. Korea Zealand,Norway,Poland,Portugal,Slovak

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Major Oil producing Nations Producing Nation bbl/day(billion barrel /day) Present share

Saudi Arabia

9760

11.8%

Russia

9934

12.4%

United States

9141

11.1%

Iran

4177

5.1%

China

3996

4.8%

Canada

3294

4.0%

Mexico

3001

3.6%

United Arab Emirates

2795

3.4%

Kuwait

2496

3%

Venezuela

2471

3%

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RESEARCH METHODOLOGY

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4. RESEARCH METHODOLOGY AND DESIGN

Research Problem/Objective: The research problem was the current status of Indian Oil Industry in the International Oil market with effects of Indian equity market on it and vice versa. The objectives of this project encompasses the ups and downs of the sentiments and mass psychology of Indian investors in the Oil sector companies and the way they invest and withdraw including the investing methods of the FIIs in the Oil sector stocks in the Indian equity market. Although, Oil sector is a kind of sector which is governed by the International Oil prices, demand, and supply in the International market with the Government of Indias regulations on various petroleum products. It is a mighty industry taking in the consideration of the world and its repercussions on the Indian Economy as India is the fourth largest importer of crude oil with 80% of the imports being crude oil. Type of Research: The research that has been carried out is a combined research Technical and fundamental research. Fundamental Research: Research concerning Fundamental analysis can be broken down into quantitative and qualitative factors. The Very Basics When talking about stocks, fundamental analysis is a technique that attempts to determine a securitys value by focusing on underlying factors that affect a company's actual business and its future prospects. On a broader scope, you can perform fundamental analysis on industries or the economy as a whole. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements.

40

Technical Research: Technical analysis is concerned with predicting future price trends from historical price and volume data. The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates. It is a method of predicting future price movements of stocks according on the basis of historical price movements of stocks. Research design A Research Design is the framework or plan for a study, which is used as a guide in collecting and analyzing the data collected. It is the blue print that is followed in completing the study. The basic objective of research cannot be attained without a proper research design. It specifies the methods and procedures for acquiring the information needed to conduct the research effectively. It is the overall operational pattern of the project that stipulates what information needs to be collected, from which sources and by what methods. This chapter has consists of Present Study, Objective of the Study, assumptions under the study, Research Methodology, Usefulness of study and its limitations. Research Method: The method of research can be described in four parts: 1) Data collection: First of all data of six year period i.e. 1st JAN 2006 to 1st JAN 2011 are collected through various sources like Bombay Stock Exchange websites etc. 2) Data Analysis: This data are then properly placed and analyzed. 3) Facts and figure analysis: In this step all the facts and figures are analyzed to understand how it solves the problem. 4) Findings: At last step all this facts and figures are concentrated and tried to find the ultimate solution and the situation of the problem. Sample Size: A large number of stock prices from 2006 to 2011 and large number of large size(market cap) companies in the Oil sector in India. Therefore, the analysis took detailed analysis of two upstream companies like ONGC and Oil India and two downstream companies like Essar Oil and HPCL.

41

Out of the four, three are nationalized companies of India.

Research Period: Research work is carried for 6 Years

Tools Used: Mostly the internet, factsheets, PDF documents and various websites informing about Oil companies including Economic Times informing about latest happenings in the Energy sector in India and the World are used as a tool to collect most of the data. Some sites which are www.bseindia.com, www.Economictimes.com www.myiris.com/shares/newResearch/companyShow. http://www.buzzingstocks.com

Type of study The research has been based on secondary data analysis. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that have been done in the area of technical and fundamental analysis of stocks. The knowledge thus gained from this preliminary study forms the basis for the further detailed descriptive research. In the exploratory study, the various technical indicators that are important for analyzing stock were actually identified and important ones short listed. Sample design

42

The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. The stocks are chosen from the Banking Sector. Sample Size The sample size is taken for four companies in the Oil sector and indices of four stock markets of the world including BSE and NSE for technical analysis and fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study.

DATA ANALYSIS AND INTERPRETATION

43

5. DATA ANALYSIS AND INTERPRETATION

ONGC Company profile It was originated in the year of 1956 as a private sector company. Later, in the year 1993 the company was came to known as Public Sector Company. ONGC's habitual activities deals with exploration, development and production of Crude Oil, Natural Gas, LPG and some other value added petroleum products such as NGL, C2-C3, Aromatic Rich Naphtha and Kerosene. The company going along with two of its folds namely ONGC Videsh Limited (OVL) and Manglore Refinery & Petrochemicals Limited (MRPL) and ten of Joint Ventures/Associates. ONGC's Basins are totally seven in numbers, Western Offshore Basin (Mumbai & Baroda), KG Basin (Rajamundary), Cauvery Basin (Chennai), Assam & Assam-Arakan Basin (Jorhat), CBM-BPM Basin (Kolkata) and Forntier Basin (Dehradun) and ONGC has two plants situated in Uran and Hazira. The company covers five regions such as Mumbai, Baroda, Nazira, Chennai and Kolkata and also ONGC running eleven institutes for different specialisation in different locations. During March 1999, ONGC, Indian Oil Corporation (IOC) and Gas Authority of India Limited (GAIL) both of three agreed to have cross holding in each other's stock to pave the way for Long-term strategic alliance amongst themselves for the domestic and overseas business opportunities in the energy value chain. The ONGIO International Pvt Ltd was incorporated in
44

the year 2001 as 50:50 joint venture projects with Indian Oil Corporation Ltd with aim of providing Training, Consultancy & Services in Hydrocarbon Sector and later company has decided to wind up ONGIO due to loss. During 2001-02 the augment recovery from onshore fields of 13 projects 2 were resourcefully commissioned. By the end of the same year 2001-02 the company 's subsidiary unit ONGC Videsh Ltd commenced its commercial production of gas. In the year of 2004 ONGC initiated Phase-I of a collaborative project on CBM in Jharia Field and successfully completed the same in 2005. During 2004-05 the company discovered its third deep-water exploration campaign 'Sagar Samriddhi' in Krishna-Godavari (KG) Basin at the location Vashistha (VA-1A) in block KG-OS-DW-IV. In the western offshore a shallow-water oil and gas was recorded in D-33, about 60 Kilometers South-West of Mumbai High, Onshore, Oil and Gas was found in Tiphuk-1 in North Assam Shelf and Oil was struck at Wamaj in Cambay Basin. Offshore, four new Platforms (2 Well Platforms, 1 Process Platforms and 1 Clamp-on) were Commissioned for enhancing production. New trunk pipelines are being laidsub-sea from Mumbai High Field to Urban Oil and Gas processing facility. In March 2005 ONGC launched its retail marketing business with commissioning of its first autofuels outlet at Manglore under the brand 'ONGC Values' and 'Shopp'njoy' for fuel and non-fuel business respectively. The company has also received approval/license from the Government for marketing of non-subsidised LPG cooking gas, Kerosene and Aviation refueling sales.

Rankings ONGC ranks 3rd Oil & Gas Exploration & Production (E&P) Company in the world and 23rd among leading global energy majors as per Platts 250 Global Energy Companies List for the year 2009 ONGC ranks 24th among the Global publicly-listed Energy companies as per PFC Energy 50 (Jan 2008) Finance Asia 100 list ranks ONGC no 1 among Indian Blue Chips.
45

 Occupies 155th rank in Forbes Global 2000 list 2010 of the worlds biggest companies for 2010 based on sales, profits, assets and market capitalisation. ONGC ranked 402nd position as per Fortune Global 500 - 2009 list;, based on revenues, profits, assets and shareholders equity. Board of Directors CMD/Director (Onshore & Explo) Director (Technology & FS) Director (Finance) Director (Offshore) Nominee (Govt) A K Hazarika U N Bose D K Sarraf Sudhir Vasudeva L M Vas

Balance sheet

Y/E March Share Capital Reserves Net worth

2009 21 894 916

2010 21 984 1006 357

2011 43 1097 1140 326

Debt, Deferred Tax 343 and Minority Interest Capital Employed Gross Fixed Assets Less: Depreciation Capital WIP Net Fixed Assets 1259 784 599 165 350

1362 902 658 176 420

1466 978 731 235 481

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Goodwill Total current assets Current Liability Provision Total Liability Net Current assets Total assets

114 507 200 82 Current 282

95 506 227 75 302

90 567 271 79 350

225 1259

204 1362

217 1466

Income statement

March Net Sales(Rs million) Total Costs EBIDTA

2009 1046

2010 1018 568

2011 1176 692

operating 614

434

449

484

47

Debt charges D,D&A Other Income

2 154 51

5 187 53

4` 206` 69

Provisions

15

PBT

312

304

343

Tax

110

107

115

PAT

202

197

228

Operational Highlights Production Oil(mmt)/Year ONGC 26.47 6.05 0.55 6.15 0.70 of 2010 1Q 2011 2Q 2011

ONGC Videsh (Joint 1.8 Venture) Total 28.27

6.6

6.85

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Mmt: Million metric tonn Oil procduction along with joint venture(ONGC VIDESH) stood at 6.85 Mmt in 2nd quarter of year 2011 with an increase of 3.78% from1st quarter.

Performance measures Year/End March Net Sales(Rs Billion) 2010 599.8 1Q 2011 136.7 2Q 2011 181.9

Net sales showing an increase of 20.6% in 2nd quarter FY11 from 1st quarter FY11 which is a very positive sign for the investors.

2010 Gross Oil Realization Subsidy Net Oil Realization 287 63.1 223.8

1Q 2011 80.8 32.5 48.1

2Q 2011 79.2 16.8 62.8

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The declaration of the govt of India about that the Oil subsidy burden shall be increased for Oil upstream companies of India from 33% to 38% shows effect on the net Oil realization in the fourth quarter of the year 2011

Higher subsidy sharing resulted in net realization dipping to US$38.7/bbl Gross realization in 4QFY11 is to be at US$108.9/bbl (in-line), while the subsidy payout to be at US$70.1/bbl resulting in net realization of US$38.7/bbl (35% lower v/s estimates).

Positive points for the invsetors Government has said that it will be divesting its 5% stake in ONGC by July 2011. The company management indicated that the process has been initiated for the same. OVL's(ONGC Videsh ltd) oil production during FY11 stood at record high at 6.8mmt (vs actual 6.5mmt inFY10). Increase in oil production was led by BC-10 block in Brazil and by Imperial Energy. In FY11, OVL achieved its highest ever production of oil & gas at 9.45mmt. Increased production and higher international prices of oil has led to 22% increase in revenues to Rs184b and 29% increase in PAT to Rs26.9b. The entire royalty outgo for Rajasthan block (JV) was borne by ONGC (despite 30% stake), which includes partner Cairn's share. ONGC has been demanding reimbursement of the royalty by the government or inclusion of royalty in the cost recovery calculations for the block and now the government has declared that the royalty burden shall be shared equally between Cairn India and ONGC. ONGC has announced 24 discoveries of Oil and Gas in FY11, of which 9 are in offshore and 15 are onland. ONGC has more than 50 % of the total NELP exploration acreage allotted. Of this, around 66% acreage is in high potential deep water. As bulk of this acreage is yet to be explored, we believe there is huge potential for hydrocarbon discoveries. ONGC has met with initial success in the KG block - the country's and its first ultra -deep water discovery UD-1. With increased efforts towards E&P, we expect the company to report more oil and gas finds, going forward.

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Key Ratios 2009 EPS P/E Dividend Yield(%) RoE Debt/Equity EV/EBIDTA 23.4 0.2 5.1 20.2 0.2 4.9 19.5 0.2 4.4 23.1 12.2 2.8 2010 22.7 12.4 2.9 2011 24.5 11.5 3.2

EPS increase is a positive sign for the investors. Increase in dividend yield depicts that ONGC as a scrip is attratcive. A fall in P/E and RoE can be due to high international oil prices in the midst of Jasmine revolution in the Middle East and 38% Oil subsidy burden shared by ONGC. Still with strong fundamentals and and attractive Exploration and Production plans with NELP program of the govt of India, ONGC will be a BUY in the medium and the long term.

No change in debt/equity ratio shows that the company struture has not changed and the company financing pattern has been the same. EPS is sure to increase futher with the expansion of business with new exploration plans. Sector P/E is 15 and ONGC is undervalued, which means its a BUY signal. EV/EBIDTA is declining which shows the net profit before depreciation.

Market Capitalization: Rs 238826 crores Oil India Company profile

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The story of Oil India Limited (OIL) traces and symbolises the development and growth of the Indian petroleum industry. From the discovery of crude oil in the far east of India at Digboi, Assam in 1889 to its present status as a fully integrated upstream petroleum company, OIL has come far, crossing many milestones. On February 18, 1959, Oil India Private Limited was incorporated to expand and develop the newly discovered oil fields of Naharkatiya and Moran in the Indian North East. In 1961, it became a joint venture company between the Indian Government and Burmah Oil Company Limited, UK. In 1981, OIL became a wholly-owned Government of India enterprise. Today, OIL is a premier Indian National Oil Company engaged in the business of exploration, development and production of crude oil and natural gas, transportation of crude oil and production of LPG. OIL also provides various E&P related services and holds 26% equity in Numaligarh Refinery Limited. The Authorized share capital of the Company is Rs. 500 Crores. The Issued, Subscribed and Paid share capital of the company is Rs. 240.45 Crores. At present, The Government of India, the Promoter of the Company is holding 78.43% of the total Issued & Paid-up Capital of the Company. The balance 21.57% of the Equity capital is held by others. OIL has over 1 lakh sq km of PEL/ML areas for its exploration and production activities, most of it in the Indian North East, which accounts for its entire crude oil production and majority of gas production. Rajasthan is the other producing area of OIL, contributing 10 per cent of its total gas production. Additionally, OILs exploration activities are spread over onshore areas of Ganga Valley and Mahanadi. OIL also has participating interest in NELP exploration blocks in Mahanadi Offshore, Mumbai Deepwater, Krishna Godavari Deepwater, etc. as well as various overseas projects in Libya, Gabon, Iran, Nigeria and Sudan. In a recent CRISIL-India Today survey, OIL was adjudged as one of the five best major PSUs and one of three best energy sector PSUs in the country.
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Balance sheet March Shareholders Funds Total debt Other Liabilities Total Liabilities Next fixed Assets Investments Net Current Assets Cash & Equivalents Other Current Assets Current Liabilities Other Assets 2010 137657 375 11409 149440 49460 8594 90016 85429 37637 33050 1384 2011E 155466 10268 11490 177225 52942 8904 115378 107112 28005 19789

Total Assets

149454

177225

With regards to utilisation of the significant cash balance available with the company management highlighted that it is in talks to buy a hydrocarbon producing property/company, the key issues with regards to same being inflated valuations due to current high oil price.

The outgo on account of the proposed acquisition could be around Rs40-50bn and management expects the same to complete over the period of next 2-3 quarters.

Income statement
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Year End/March Net Revenue(Rs million) Raw material expense Gross Profit Other Expenses EBIDTA Depreciation Interest Other Income Profit Before Tax Total Tax Profit after Tax Number of shares EPS and

2010 79056 163 78893 53513 25380 Net 7326

2011E 83034 76 83110 42820 40290 9477

10658 28676 12845 15831 240.5 65.8

12458 43132 14225 28907 240.5 120.19

A significant increase in PAT and EPS from 2010 to 2011 makes IOC very attractive scrip with strong fundamentals of the company. With a significant amount of casha and bak balances and an increased PAT the company has several exploration plans. On the exploratory front, OIL believes it has an exciting portfolio wherein key prospects are Assam Arakan basin followed by KG onshore field on the domestic front while on the overseas front it believes Gabon offers good prospects.

Also, increase in EBIDTA is a good signal for the investors that the earnings before depriciation has been on an increase which is a reflection of good business.

Perfromance measures(mcm:Million cubic meter)

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Oil production is expected to be quite similar in 2011 to the previous year in 2010. Subsidy burden to be increased to Rs. 32,930 million because of Govt of Indias policy of increasing the Oil subsidy burden for the upstream companies from 33% to 37.5%.. Company has started the current year on a good note with crude oil production currently at 3.85 MMT. Management believes the average production during the year is likely to be around 3.9MMT, resulting into a growth of around 6%.

The increase in the production is likely to occur due to various exploration activities undertaken by the company and incremental production from horizontal wells. On account of increased volumes guidance, company is increasing the crude oil sales volumes estimates to 3.87MMT from 3.73 MMT earlier for FY2011E (increase of 3.7% compared to earlier estimates).

Market cap: Rs 32627 crore

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Key financial values Year End March Revenues(Rs million) EBIDTA(Rs million) PAT(Rs million) EPS(Rs) 2010 79056 25380 15831 65.1 2011E 83034 40290 28877 120.8 2012E 95225 46765 33526 139.4

Growth (%)

21.7

82.4

16.1

OIL India has been delivering impressive performance on the core operating parameters such as production growth coupled with efficient operations resulting in low finding, development and lifting cost, this coupled with healthy and consistent reserve replacement ratios and strong reserve base holds company in good state.

Increase in revenues and from 2010 to 2011 is the proof of the above statement.

Key Ratios 2010 EPS ROE(%) EV/EBDITA P/E Dividend yield 65.8 13.7 8.8 19.5 2.6 2011 120.1 19 5.3 10.7 3

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A significant increase in EPS shows that the scrip is very attractive. A decrease in EV/EBDIT could be because of the lower earnings as a result of increased subsidy burden on Oil upstream companies from 33% to 38%. A decrease in P/E ratio could be because of increased subsidy burden and high crude oil prices in international market due to middle east unrest resulting in redution of CMP of IOL.

Increased dividend yield in 2011 keeps the scrip attactive. P/E ratio has declined steeply which depicts that the current market price has declined and has gone from overvalued to undervalued. ESSAR OIL

Essar Oil's assets include developmental rights in proven exploration blocks, a 14 MTPA refinery on the west coast of India and over 1,376 Essar-branded oil retail outlets across India. Plans are under way to increase its exploration acreage in various parts of the globe, expand its refinery capacity to 18 MTPA, and open 1,700 outlets countrywide by March 2011. Our global portfolio of onshore and offshore oil and gas blocks, with about 45,000 sq km is available for exploration. We have over 300,000 bpsd (barrels per stream day) of global cruderefining capacity that is being expanded to 375,000 bpsd, with the refining capacity being enhanced by almost double. We have a controlling stake of 50 percent stake in Kenya Petroleum Refineries Ltds 80,000-bpsd refinery; the remaining 50 percent is owned by the Kenyan government. Global exploration portfolio The company is aggressively growing our presence in the Exploration and Production business. We have 2C contingent resources of 148 mmboe (million barrels of oil equivalent), and best estimate prospective resources of 1,012 mmboe. Largest CBM player in India

57

The comapny have an acreage of over 2,700 sq. km in India, which gives us the largest CBM acreage in the country. Our CBM block in Raniganj is close to commercial production and has signed customer contracts with several companies. Large refining capacity The company have a 14 MTPA refinery at Vadinar in Gujarat, which started commercial production on May 1, 2008. It has been built with state-of-the-art technology and has the capability to produce petrol and diesel suitable for use in India as well as advanced international markets. It will also produce LPG, Naphtha, light diesel oil, Aviation Turbine Fuel (ATF) and kerosene. The refinery has been designed to handle a diverse range of crude from sweet to sour and light to heavy. It is supported by an end-to-end infrastructure setup including SBM (Single Buoy Mooring), crude oil tankage, water intake facilities, a captive power plant (currently 500 MW, being expanded to 1,200 MW), product jetty and dispatch facilities by both rail and road. The comapny have made huge investments in installing the most advanced equipment and units in our refinery. At 97 m, the refinerys crude column is Asias tallest and capable of enhanced separation of petroleum products. The DHDS reactor is also the largest in its category capable of producing Euro V compliant diesel. The refinery is, in fact, unique in its complexity and its ability to produce value-added products. All units have operated many notches over their rated capacities with the crude unit achieving over 14 million tonnes (300,000 bpsd) in the very first year of operation. This is a first for any refinery in India. We are expanding the refinery capacity to 18 million tonnes with an increase in its complexity from 6.1 currently to 11.8 on the Nelson index. As part of a continuous optimization programme, the company has decided to further expand the refinerys capacity by 2 million tonnes to 20 million tonnes (405,000 bpsd) by September 2012. If market conditions are favourable, the capacity will be enhanced further to 38 million tonnes, with a complexity of 12.8. Until date, our Vadinar refinery has successfully processed more than 32 varieties of crude from across world, including some of the toughest crudes. Plans are afoot to expand the refinery capacity threefold in the next few years. Post

58

expansion, the Vadinar refinery will be among the five largest single-location refineries in the world.

Retail and Marketing Essar Oil serves retail customers through a modern, countrywide network of over 1,376 retail outlets, with plans to increase the numbers to 1,700 retail outlets by March 2011. We were the first private Indian company to enter petro retailing, looking beyond urban markets and reaching out to consumers in Indias heartland. We offer a wide range of products to bulk customers in the industrial and transport sectors. EOL has product offtake and infrastructure sharing agreements with oil PSUs, namely Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation (IOCL). We have received approvals to supply Aviation Turbine Fuel (ATF) to the Indian Armed Forces. Management Team Mr J Mehra Director, Essar Group Mr Malay Mukherjee CEO, Steel Business Group Mr Naresh Nayyar CEO, Energy Business Group Mr Rajiv Agarwal MD, Essar Ports Ltd. Mr AR Ramakrishnan MD, Essar Shipping Ltd. Mr Aparup Sengupta CEO, Aegis Ltd. Mr Alwyn Bowden CEO, Projects Business Group Mr Pradeep Mittal CEO, Minerals & Mining Business Mr Alok Gupta CEO, Essar Retail
59

Mr Vikash Saraf Director, Strategy & Planning, Essar Group Mr V Ashok CFO, Essar Group

Balance sheet Year End March(Rs 2010 million) Equity Share capital Reserves and surplus Total net worth Total debt Tax Liability Total Liability 12181 39898 52079 103537 6 155661 13823 56900 70723 136248 6 206995 199218 13823 72112 85935 140005 6 225935 210629 2011E 2012E

Fixed Assets(WIP and 168645 Investments) Current Assets(Cash n 80789 bank Inventory, &Advances) Current Liabilities Provisions 101603 228 balances, Loans

93578

97910

90602 228

87376 228

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Miscellaneous Net current Assets Total Assets

5009 18043 155611

5000 2747 206965

5000 10306 225934

Income Statement Year End March( Rs 2010 million) Net sales 364426 471200 440930 506536 455606 2011E 2012E

Raw Material costs, 343196 Inventory and other expenses Operating Profit Other Income DDA EBIT Interest PBT Tax PAT 12980 6957 7360 12576 11952 624 53 322

25570 2230 7310 20490 12140 8350 1810 6540

38319 3085 8812 32591 13576 19051 3803 15212

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Performance measures

Continous increase in Revenue and EBIDTA has been shown in the above inforamtion from the year 2010 to 2013. The reason for this has been explained the following lines of information.

Essar Oil is basically a refiner of crude Oil and in the present scenario refinery ahs become important because a combination of high crude prices and sustained product demand is resulting in strong product spreads which has positioned pure refiners in a
62

sweet spot. This is best manifested through a cursory glance at the benchmark Singapore GRM which is going strong at $ 8.8/bbl during the quarter-to-date. Refining margins have also risen sequentially from $ 7.5/bbl in Q4FY11 to $ 8.8/bbl during the quarter-todate. Currently, Singapore GRM is ranging between $ 8-8.5/bbl, which is expected to result in very favorable economics for pure refiners. So according to the above information refining business has become very important in the midst of current circumstances.

Why growth in Revenue and EBIDTA? The company has indicated that the expanded refinery of 18 MMTPA would achieve mechanical completion during Q2-Q3CY11. The company expects the expanded capacity of 18 MMTPA to come on-stream during Q4 CY11 and hence, contribute to FY12 revenues. The refinery optimization project, which envisages further expansion of refining capacity to 20 MMTPA, is progressing as per schedule and is expected to complete by Sept 2012. FY13 is expected to reap the full benefit of the capacity expansion programmes being envisaged by the company. With strong demand from the developing world, Singapore GRMs have risen from $ 7.4/bbl in Q4FY11 to $ 8.5-9/bbl currently.
The company expects core GRM (without sales tax benefit) at $ 7.6/bbl and $

7.7/bbl for FY12 and FY13 respectively, which is $ 3/bbl higher than FY11 core GRM of $ 4.5/bbl. Hence, the comapny expects total GRM of $ 10/bbl & $ 10.1/bbl in FY12 & FY13 respectively.

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Positive points for Investors The company is currently producing 35,000 scmd from 33 wells in its Raniganj CBM block, which is expected to achieve peak production of 3.5 mmscmd by FY15. The company also has a stake of 50% in Ratna/R-series which has proven oil reserves and is the sole operator of the Rajmahal CBM block, which is potentially bigger than its Raniganj block.
The above 7 points point out greater production in Oil and increased refining

capacity of the company which makes Essar Oil an attractive stock with the target price surely to rise in the medium and long term, so its surely a BUY. Capacity expansion of the refinery is expected to result in 15.3% CAGR in net sales from 471,200 mn in FY11 to 626,312.4 mn in FY13. The jump in GRMs is expected to result in EBITDA CAGR of 46.1% from 27,800 mn in FY11 to 59,299.1 mn in FY13. The company expects a total capex of 35 bn during FY12 & FY13 towards the refinery expansion project, the subsequent optimization project and investment in its producing Raniganj block and other exploratory blocks in India & overseas.

64

Production to rise to 18 mmtpa in 2013.

An increase in Gross refinery margin reflects increase in EBIDTA.

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Key Ratios

2010 EPS P/E ROE EV/EBIDTA Debt/Equity 0.2 439.5 0.7 11.6 2.5

2011 4.5 26.1 10.7 10.2 2.2

2012E 10.5 11.2 19.4 6.9 2.1

A sharp rise in EPS depicts that the scrip is goig to remain attractive for the next two years. A fall in P/E ratios shows that the stock might have been overvalued in the year 2010 and with the increase in EPS along with the decrease in the current market price of the scrip the P/E ratio is going to fall.

A fall in EV/EBIDTA ratio shows that the earnings in the year 2011 and 2012 could be affected by the loss or under recoveries in sales of per litre refined petrol, for which the government of India have to provide the subsidy.

Overall an increase in the ROE, give positive signs for the business and strong company fundamentals with good liquidity to maintain the working capital, the stock is a BUY.

66

A reduction in the debt to equity ratio of the company also shows that the company ahs been financing its business more from equity shareholders wealth than from debt which is a good sign.

P/E has declined which shows the company was hugely overvalued and has become undervalued currently

Market capitalization: Rs 12627crore

HPCL Company profile HPCL is a Government of India Enterprise with a Navratna Status, and a Fortune 500 company, with an annual turnover of Rs. 1,32,670 Crores and sales/income from operations of Rs 1,43,396 Crores (US$ 31,546 Millions) during FY 2010-11, having about 20% Marketing share in India among PSUs and a strong market infrastructure.

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HPCL operates 2 major refineries producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per Annum (MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a capacity of 8.3 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA. In addition, HPCL is constructing a 9 MMTPA refinery at Bathinda, in the state of Punjab, as a Joint venture with Mittal Energy Investments Pte. Ltd. HPCL also owns and operates the largest Lube Refinery in the India producing Lube Base Oils of international standards, with a capacity of 335 TMT. This Lube Refinery accounts for over 40% of the India's total Lube Base Oil production. HPCL's vast marketing network consists of 13 Zonal offices in major cities and 101 Regional Offices facilitated by a Supply & Distribution infrastructure comprising Terminals, Pipeline networks, Aviation Service Stations, LPG Bottling Plants, Inland Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL, over the years, has moved from strength to strength on all fronts. The refining capacity steadily increased from 5.5 MMTPA in 1984/85 to 14.8 MMTPA presently. On the financial front, the turnover has grown from Rs. 2687 Crores in 1984-85 to an impressive Rs 1,32,670 Crores in FY 2010-11.

Board of directors CMD & Director (Marketing) Director (Human Resources) Director (Finance) Director Company Secretary S Roy Choudhury V Viziasaradhi B Mukherjee P K Sinha L N Gupta Shrikant M Bhosekar

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Director (Refineries) Director(PartTime NonOfficial) S K Roongta Anil Razdan Director (Marketing)

K Murli Gitesh K Shah

Nishi Vasudeva

Balance sheet Year Marrch(Rs mn) Equity share capital Reserves 3390 3390 118025 3390 131495 End 2009 2010 2011E

and 108023

69

surplus Net worth 111413 121415 201612 134885 177612

Loan Funds(Secured 240612 and loans) Tax Liabilities Total Liabilities Fixed Assets Current Assets Current Liabilities Provisions Net current Assets Total Assets 16864 368928 319443 174155 112294 12371 49490 368928 unsecured

16864 339891 280438 166834 102283 11293 53258 339891

16864 329361 261761 171440 98529 11506 61405 329361

Income statement

70

Year End March(Rs 2009 mn) Net sales Expenses(Material cost, Employee cost, other expenses) EBIDTA Depreciation EBIT Interest Expenses Other Income PBT Less: Tax PAT 32655 10661 21994 21123 9243 10118 2545 7573 1271091 1238437

2010

2011E

1158103 1119957

1183804 1143461

38146 12505 25641 9321 7835 24154 9393 14761

40343 12677 27667 7104 5462 26023 8588 17435

A positive increase in EBIDTA from 2009 to 2011 and increase in sales in the forthcoming year also indicates that the company is healthy, but more budgetary support from GOI is needed to keep HPCL in black. We expect GOIs budgetary support to increase only if it is able to garner larger funds from disinvestment.

If US dollar continues to remain under pressure, the commodities are likely to stay firm including crude oil, hurting the Oil Marketing companies performance. Thus growth prospects in the year 2012 and 2013 looks a bit gloomy.
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Key performance measures

Revenue for the quarter was at Rs. 340bn, growth of 22% YoY, mainly on account of higher volumes and cash compensation received from the government of Rs.17.4bn. EBIDTA during the quarter was at Rs.7.8bn, against of Rs.3.5bn, growth of 120%, YoY. During the quarter company reported inventory gain of Rs.16.8bn as against inventory loss of Rs.8.3bn a year ago.

The company received upstream discount of Rs.11.3bn, in respect of crude Oil/LPG/SKO purchased from them has been accounted during the quarter. The company has received budgetary support of Rs.17.4bn from the GOI for the underrecovery of cooking fuel and auto fuel during the quarter.

Though there has been some clarity on sharing mechanism, more budgetary support from GOI is needed to keep HPCL in good health and a BUY for the investors in the stock market.

Diesel deregulation in the near future will also help to reduce the losses the company is going through.

Key Ratios

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2009 EPS P/E Dividend Yield EV/EBIDTA ROE Debt/equity 22.3 16.75 2.0 6.6 7.5 1.9

2010 43.5 8.75 3.5 5.7 13.5 2

2011E 51.4

2.9 5.3 15.3 1.9

A sharp decline in P/E ratio in 2010 depicts the sharp decline in the market price of the stock with the increase in international crude oil prices and will intensify further with the unrest in the Middle east in early 2011 and because of which the company had to bear huge losses on per litre petrol.

A decrese in the EV/EBIDTA ratio shows that companys Enterprise value has been decling with respect to its earnings which resembles that the earnings used by the company for its business has not been giving good returns, this is mainly because the government has compensated only for Rs 120bn out of Rs 300 bn on under recoveries for cooking fules. If no more procisions are made by the government then even in 2011 the company will have a lower EV/EBDITA ratio.

Dividend yield is to expected to reduce in the year 2011 due to decline in the annual dividend per share which could be due to a reduction in the current market price of the stock of HPCL or the earnings may remain stagnant or may have a very small increase because of the under recoveries for losing money on selling per litre petrol.

P/E has undervalued which could be due to reduction in current market price.

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Percentage changes of Closing Prices of Sensex, ONGC and Oil and Gas sector(2006-11)

Month Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08

Sensex 1.268987 8.890364 6.456678 4.074698 5.665913 0.661492 2.205063 -8.18137 1.035779 6.12197 4.84481 0.729144 6.146407 -1.49437 12.8765 14.72949 -2.39339 4.770908 -13.0048 -0.39657 -11.0035 10.5013

Oil & Gas -4.60161 12.11617 2.502641 4.173997 0.539902 1.668592 7.305004 -5.02758 1.929929 11.15657 9.254359 -2.168 6.606299 0.36443 17.17889 21.92576 6.014935 7.620474 -19.5195 3.054217 -9.20346 14.8647

ONGC 6.109833 3.414842 -3.77087 -30.285 5.669977 0.93973 3.833113 -12.4862 11.07387 3.843307 0.296085 -1.36125 1.313529 -6.17615 11.70194 30.27456 -6.18239 5.616058 -20.0647 2.423108 -3.06218 5.303918

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Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10

-5.04266 -17.9949 6.642227 1.45433 -11.7003 -23.8901 -7.10396 6.099275 -2.31225 -5.6517 9.1872 17.45635 28.2551 -0.89851 8.117035 -0.02342 9.320441 -7.18498 6.479126 3.181986 -6.3376 0.437646 6.684419 0.17652 -3.4973 4.463184

-9.6381 -13.3472 7.995418 -0.71967 -6.42044 -31.46 -9.31899 7.687214 3.345763 -3.01241 16.30792 15.30659 28.11947 -9.87881 0.957812 3.107987 7.171349 -9.93995 8.991746 1.830444 -5.08043 -3.44864 5.865839 -2.31742 2.589455 6.811431

-16.3635 -5.73875 22.25973 2.735806 1.197107 -35.3194 3.814572 -3.98361 -1.41541 5.006077 12.81198 11.00423 35.86366 -9.25249 9.127542 1.777587 -1.1728 -3.29548 5.857685 -1.79309 -6.60269 1.568467 -1.66062 -3.95084 10.62459 13.12543
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Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

0.945658 0.575489 11.67429 -0.18327 -2.59625 5.112942 -10.6394 -2.75189 9.099386 -1.59042 -3.30624 -0.49218 -100

-6.51087 -2.41498 5.305717 4.803685 -8.09895 5.360124 -10.56 -0.23687 8.258303 -2.2691 -4.13908 -4.83593 -100

-5.89594 7.742143 4.690943 -7.01366 -4.22406 3.621215 -8.95701 -77.0158 7.186403 6.480524 -8.83781 -2.71662 -100

Correlation betweeb the Sensex and Oil and Gas sector is 0.85, which is very high as a correlation value. The above value is very much evident in the graph as the red line of the Oil and Gas sector overlapping the blue line of Sensex most of the time. Correlation between ONGC and Sensex is 0.24, which is not very high value of correlation.
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An instance of the above value can be given, aroung Oct 06 ONGC is expereiencing a negative percentage change, whereas Sensex is having a positive percentage change. The above chart shows that ONGC and Sensex do not move hand in hand or they are not that much dependent on each other or they affect each other in a very little manner.

Percentage changes of Closing Prices of Sensex, Oil India and Oil and Gas sector(2009-11)

Months Oct-09

Sensex 6.479126

Oil and Gas 8.991746

Oil India -79.6431

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Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

3.181986 -6.3376 0.437646 6.684419 0.17652 -3.4973 4.463184 0.945658 0.575489 11.67429 -0.18327 -2.59625 5.112942 -10.6394 -2.75189 9.099386 -1.59042 -3.30624 -0.49218 -100

1.830444 -5.08043 -3.44864 5.865839 -2.31742 2.589455 6.811431 -6.51087 -2.41498 5.305717 4.803685 -8.09895 5.360124 -10.56 -0.23687 8.258303 -2.2691 -4.13908 -4.83593 -100

-377.552 -32.1192 -270.092 -139.507 -211.739 163.045 -195.587 -62.9085 -319.7 -9.46209 -268.599 -166.183 -297.01 -97.7569 -3586.4 -127.477 82.4108 16.83593 1967.855 -100

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The correlation between Oil India and Sensex is 0.741, which is quiet high value in terms of correlation. The green line of the company and the blue line of Sensex are following each other as shown in the chart, not excatly but both the line are moving up and down almost together. The above statement depicts that Oil India and Sensex have been quite dependent on each other in the last 2-3 years and thus effect each others stock price movements. The Correlation betweeb the Sensex and Oil and Gas sector is 0.85, which is very high as a correlation value shows the amount of dependency of Sensex on the Oil and gas sector.

Percentage changes of Closing Prices of Sensex, Essar Oil and Oil and Gas sector(06-11)

Months Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07

Sensex 8.890364 6.456678 4.074698 5.665913 0.661492 2.205063 -8.18137

Oil and Gas 12.11617 2.502641 4.173997 0.539902 1.668592 7.305004 -5.02758

Essar oil -13.963 23.15036 9.011628 -3.37778 -10.1196 11.66837 12.19065

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Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

1.035779 6.12197 4.84481 0.729144 6.146407 -1.49437 12.8765 14.72949 -2.39339 4.770908 -13.0048 -0.39657 -11.0035 10.5013 -5.04266 -17.9949 6.642227 1.45433 -11.7003 -23.8901 -7.10396 6.099275 -2.31225 -5.6517 9.1872 17.45635

1.929929 11.15657 9.254359 -2.168 6.606299 0.36443 17.17889 21.92576 6.014935 7.620474 -19.5195 3.054217 -9.20346 14.8647 -9.6381 -13.3472 7.995418 -0.71967 -6.42044 -31.46 -9.31899 7.687214 3.345763 -3.01241 16.30792 15.30659

-11.5196 -4.43213 11.30435 -4.07986 -0.45249 -3.63636 -1.50943 11.68582 -2.83019 327.0962 34.53193 -30.9831 14.97886 -20.8285 35.47677 -19.2745 -20.9479 6.136878 11.59073 -23.6151 -47.7337 -11.1244 16.75639 -14.5821 -10.1889 9.015778
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Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11

28.2551 -0.89851 8.117035 -0.02342 9.320441 -7.18498 6.479126 3.181986 -6.3376 0.437646 6.684419 0.17652 -3.4973 4.463184 0.945658 0.575489 11.67429 -0.18327 -2.59625 5.112942 -10.6394 -2.75189 9.099386 -1.59042 -3.30624 -0.49218

28.11947 -9.87881 0.957812 3.107987 7.171349 -9.93995 8.991746 1.830444 -5.08043 -3.44864 5.865839 -2.31742 2.589455 6.811431 -6.51087 -2.41498 5.305717 4.803685 -8.09895 5.360124 -10.56 -0.23687 8.258303 -2.2691 -4.13908 -4.83593

98.75948 15.74202 -8.62792 -0.98361 -3.84106 9.435262 -15.9849 -1.57303 6.354642 -1.82469 -4.22741 5.289193 0.650524 -10.9515 13.75 -8.96845 -4.36137 4.80456 14.33566 -16.2419 11.72414 -11.6195 -12.4897 16.90141 6.305221 -1.09558
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Jun-11

-100

-100

-8.47976

Correlation between Essar Oil and Sensex is 0.48 which is a moderate value of correlation. From the above chart it is very apparent that the green line of Essar Oil and Blue line of Sensex are not moving up and down together which is a prove that the correlation between them is not very high.

Around September 2007, we can see from the chart that green line of essar oil is having a very high positive pecentage change, whereas blue line of Sensex is having a negative percentage change during the same time period.

The Correlation betweeb the Sensex and Oil and Gas sector is 0.85, which is very high as a correlation value shows the amount of dependency of Sensex on the Oil and gas sector, which is very much visible from the chart as red line and blue line overlap each other most of the time.

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Percentage changes of Closing Prices of Sensex, HPCL and Oil and Gas sector(06-11)

Months Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07

Sensex 8.890364 6.456678 4.074698 5.665913 0.661492 2.205063 -8.18137 1.035779 6.12197 4.84481 0.729144 6.146407

Oil and Gas 12.11617 2.502641 4.173997 0.539902 1.668592 7.305004 -5.02758 1.929929 11.15657 9.254359 -2.168 6.606299

HPCL -4.60722 23.7258 0.611621 16.16306 -13.36 -1.08367 11.96121 -13.1216 -8.89956 9.485205 7.626805 -7.86034
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Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09

-1.49437 12.8765 14.72949 -2.39339 4.770908 -13.0048 -0.39657 -11.0035 10.5013 -5.04266 -17.9949 6.642227 1.45433 -11.7003 -23.8901 -7.10396 6.099275 -2.31225 -5.6517 9.1872 17.45635 28.2551 -0.89851 8.117035 -0.02342 9.320441

0.36443 17.17889 21.92576 6.014935 7.620474 -19.5195 3.054217 -9.20346 14.8647 -9.6381 -13.3472 7.995418 -0.71967 -6.42044 -31.46 -9.31899 7.687214 3.345763 -3.01241 16.30792 15.30659 28.11947 -9.87881 0.957812 3.107987 7.171349

-3.90144 -9.01321 13.57814 -9.94361 14.00543 35.18858 -30.7151 16.94683 -14.5579 0.64554 -4.89796 -28.3262 25.43484 -8.63833 20.60214 -21.2503 24.1289 15.11186 4.785479 -2.13473 -3.77257 2.378298 31.86933 -17.6851 16.70289 1.475645
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Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

-7.18498 6.479126 3.181986 -6.3376 0.437646 6.684419 0.17652 -3.4973 4.463184 0.945658 0.575489 11.67429 -0.18327 -2.59625 5.112942 -10.6394 -2.75189 9.099386 -1.59042 -3.30624 -0.49218 -100

-9.93995 8.991746 1.830444 -5.08043 -3.44864 5.865839 -2.31742 2.589455 6.811431 -6.51087 -2.41498 5.305717 4.803685 -8.09895 5.360124 -10.56 -0.23687 8.258303 -2.2691 -4.13908 -4.83593 -100

13.13003 -13.6279 1.733853 10.97855 -14.5508 3.834057 -8.13501 -0.91066 14.37173 30.14686 -7.8135 21.46651 -3.26077 -4.31211 -15.3145 -5.08125 -8.13849 -11.0292 11.59919 4.216277 2.137097 9.290696

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Correlation between HPCL and Sensex is 0.609, which is higher than moderate value,but not that great. In Nov 07 its clear from the chart that, when green line of HPCL was having a positive percentage change, exactly at the same time period blue line of Sensex was experiencing a negative percentage change.

Similar oppostie percentage change can be seen between Jun and Dec 08. The above two instances show that Sensex is less dependent on the movement of HPCL . The Correlation betweeb the Sensex and Oil and Gas sector is 0.85, which is very high as a correlation value shows the amount of dependency of Sensex on the Oil and gas sector, which is very much visible from the chart as red line and blue line overlap each other most of the time.

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Conclusion on Ratio analysis of the companies

ONGC

OIL India

Essar Oil 0.2 0.7 11.6 26.1 2010

HPCL

ONGC

Oil India

Essar Oil 4.5 10.7 10.2 11.2 2011

HPCL

EPS ROE

22.7 20.2

65.8 13.7 8.8 19.5 2010

43.5 13.5 5.7 8.75 2010

24.5 19.5 4.4 11.5 2011

120.1 19 5.3 10.7 2011

43.5 15.3 5.3 8.9 2011

EV/EBIDTA 4.9 P/E 12.4 2010

Essar Oil ltd performs the best as far as ROE is concerned, so it must be an attractive stock in the near future, but has lower EPS compared to other companies. EV/EBIDTA is on a decline for every company, this is very much because of the under recoveries of downstream companies like Essar Oil and HPCL and the subsidy burden on the upstream companies like ONGC and Oil India along with wide exploration and
87

refining plans which shall increase their fixed assets with increase in expenses to buy those assets.

Oil India give the highest EPS, but its an upstream company and the subsidy burden will be a problem in the near future as well, Only HPCL has a positive percentage change in terms of P/E. Overall these are Big players of Indian Oil Industry and every company depsite losses on per litre petrol, increased International crude Oil prices and unrest in the Middle East have shown nice performance as far as ROE is concerned.

Recommendation With reduction in the demand in US and Europe for Oil as their economies slow down even further, oil prices are sure to come below $90 per barrel. These companies will surely benefit and it will be a respite for the Govt of India as well in terms of subsidy burden.

With strong fundamentals and Govt support these big Oil giants are supposed to perform better and its surely a BUY for all of them.

TECHNICAL ANALYSIS ONGC

88

We can see a double bottom trend around May 2011 which is a Bullish pattern, indicates that the market is going to recover or go upwards in the next few candles of weeks of trade

Around 24th May a news related to the subsidy burden from Govt of India was announced and the burden was increased from 33% to 38% on the Oil upstream companies of India and this move triggered a sharp fall on the stock prices of companies like ONGC,GAIL and Indian Oil.

This sharp fall can be seen in the month of May. In 3rd of July another news, this time it was International on the release of 60 million barrels of oil into the world market, a decision taken by IEA for the 28-nation group, which includes the US, plans to release 2 million barrels per day for a month.

The release is intended to cover shortfalls in global markets following the uprising in Libya In the first week of July a sharp rise can be seen trigged by the above news and is making an UP FLAG kind of pattern which is bullish, means the scrip is going to perform well and have a rally in the next few weeks of trading and its a BUY signal for the next week.
89

With the news on US debt and weakening of European economies the demand of Oil is sure to fall down, its a BUY signal again

Oil India

90

We can see two double bottom trends

1st with neck line from middle of february to middle of May indicating a bullish

pattern and immidiately after the neck line ends we can see thet the market rallies for a week or 5-6 candles.
2nd with neck line from start start of May to 1 st week of June, which indicates

another bullish pattern and an uptrend for the market in the next few trading weeks and which really takes place as shown in the chart in the 1st week of July

The news of subsidy burden on 24thMay can be seen with the scrip going down and the news of 3rd July from IEA provoked another good week for the scrip in the first week of July

With the news on US debt and weakening of European economies the demand of Oil is sure to fall down, this has consolidated the scrip prices recently in the first week of August and its a BUY signal for the investors in the next few trading weeks.

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Essar Oil

The news of subsidy burden on 24thMay can be seen with the scrip going down in the third week of May and the news of 3rd July from IEA provoked another good week for the scrip in the first week of July.

A news on 22nd July stating that Saudi Aramco will supply an additional one million barrels of oil to Indian Oil Corp for July while Indian private firm Essar Oil has requested similar volumes and Essars request has not yet been confirmed.

The above news led to the downfall of scrip prices in the last week of July as shown in the chart. But, with the latest news(14th Aug) of Essar Oil Ltd (EOL) stating that it would raise up to $1.5 billion (Rs 6,800 crore) in foreign currency loans to fund expansion and EOL is expanding its Vadinar refinery in Jamnagar,the Phase-I expansion, which will take the facilitys capacity to 18 million tonnes per annum (mtpa) from 10.5 mtpa, is

92

expected to be completed by September, the scrip is sure to consolidate quiclkly and should see a bullish pattern in the next few weeks.

So its a BUY signal for the invsetors

HPCL

The news of subsidy burden on 24thMay can be seen with the scrip going down in the third week of May and the news of 3rd July from IEA provoked another good week for the scrip in the first week of July.

With unrest in the Middle East in the first months of February 2011, we can see a sharp fall in the scrip in Janaury and February in the chart, because of the increase in the Oil prices caused by the above mentioned problem, the Brent crude Oil went upto $117/barrel.
93

With the news on US debt and weakening of European economies the demand of Oil is sure to fall down, this has consolidated the scrip prices recently in the first week of August and its a BUY signal for the investors in the next few trading weeks.

CONCLUSION

94

CONCLUSION
As seen from the analysis of technical charts that the movement of Oil sector stocks are dependent on the following condotions Government of Indias regulations on subsidy sharing and diesel deregulations. Govt of Indias regulations about increase or cut on the prices of petrol. On the National Exploration license policy frameworked by the Govt of India for exploration of deep sea beds on Bay of Bengal and Arabian Sea. Demand and Supply of crude oil in the International Market. Unrest in the Middle east countries affect the prices considerably. Economic slowdown of US and Europe also affects the indices of Brent crude and New york crude, which in turn play on the sentiments of Indian investors also, thus affecting oil sector scrips on the BSE and NSE.
If supply is more and demand is less, then the oil prices go down and oil sector

stcoks price go up and vice versa. European Winter also affects the Oil prices.

95

RECOMMENDATIONS

96

RECOMMENDATIONS
With reduction in the demand in US and Europe for Oil as their economies slow down even further, oil prices are sure to come below $90 per barrel. These companies will surely benefit and it will be a respite for the Govt of India as well in terms of subsidy burden.

With strong fundamentals and Govt support these big Oil giants are supposed to perform better and its surely a BUY for all of them. With new exploartion avenues for upstream companies like ONGC and Oil india there production is going to go up and this will help expand their business, so its a BUY signal for the above two companies is the medium to long term.

Under India's refining business expansion plans running to 2012, the world's fourth biggest importer of crude oil is expected to reach refining capacity of 240.96 million tonnes.

The above sentence proves that downstream companies like Essar Oil and HPCL are going to expand their refining capaicty which is a good news for their investors in the medium and liong term, so a BUY signal for both the comapnies

97

LIMITATIONS STUDY

OF

THE

98

LIMITATIONS OF PROJECT

All the data taken for study are secondary data from various sources ,so i had to assume that the data collected are true in all respect. The stock price movements take place everyday but, it is impossible to record the last five years everydays data in the project. So, closing price of the last traded day of the month has been taken for study. Stock price movements are based on Political, Economical, current positive or negative news of company and mass psychology of the investors. It is clearly impossible to predict the mentality of every investor in the capital market. So, my jugement and alaysis is based on my study and understanding of the industry, Economy and pattern of price movements of the stock market.

The inside information of a particular company in the media is many times false and no one has control on any rumor or such false information(ex: expansion of Business). But, these informations might have been used in the project as they have been published.

99

ANNEXURE
100

ANNEXURE

ONGC

101

Likewise three other Income statements of the other three companies have been studied. Also various perfomance measures have been gone through.

102

Likewise three other Income statements of the other three companies have also been studied Also various perfomance measures have been gone through.

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BIBLIOGRAPHY

104

BIBLIOGRAPHY

www.wikipedia.com http://www.myiris.com/shares/newResearch/companyShow.php www.buzzstocks.com http://www.scribd.com/doc/19208923/Financial-Analysis-of-ONGC www.indiainfoline.com www.moneycontrol.com www.bseindia.com www.economictimes.com www.rediffmoney.com

REFERENCES

Market mantra by India infoline. Financial Management by Prasanna chandra. Theoretical background of Precision Technicals. PDF documents on Oil sector by KPMG. PDF document of Ministry of Petroleuma and Natural Gas(Govt of India) PDF documents of ONGC,HPCL,ESSAR OIL & OIL INDIA by various brokerage and equity research companies.

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106